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Commentaries & market updates.

“Heads we win tails you lose”

“Heads we win tails you lose”

Now that the Treasury Department has come out in favor of a “weaker dollar” and
that George Soros and most major Wall Street brokerage firms are now forecasting
a weaker dollar, the complacency with which America’s foreign creditor’s have
thus far shown with respect to the dollar should be coming to an end. As a
result, look for the rate of the dollar’s decline to accelerate in the coming
months, with the euro climbing to between 1.25 and 1.30, and the U.S. dollar
index, now approximately.93, falling to about.80, by year end. Commodity
prices should respond by heading higher, with the price of gold rising to $450-$500
per ounce, and oil prices rising above $40 per barrel.

As foreigners adopt a more realistic outlook for the dollar’s future value,
look for increased upward pressure on interest rates as foreigners shun U.S.
treasuries. In the short run these pressures will be mitigated by purchases
by the Fed, foreign central banks, and speculators. But in the longer term,
look for these forces to be overwhelmed by capital flows. In addition, now
that the lower dividend tax rate also applies to foreign stocks, which currently
offer higher yields than U.S. stocks, and with Wall Street finally adopting
a bearish outlook for the dollar, look for additional domestic selling of dollar
assets as well.

The most interesting aspect of the dollar’s recent weakness is the spin that
Wall Street and the financial media propaganda machines have put on it. When
the dollar was rising, a strong dollar was seen as good for the U.S. economy
and the stock market. Now that the dollar is falling, the reverse is also being
touted as good for the economy and the stock market. The main reason seems
to be that while a strong dollar was seen as helping to fight “inflation,” a
weak dollar is seen as helping to fight the phantom threat of “deflation.” It
is also said repeatedly that a weak dollars helps the earnings of American
exporters. In the short run these exporters may indeed earn more dollars, but
each dollar they earn will have less value. After all, its easy to sell more
if you cut prices. In the long run, the weaker dollar will result in higher
costs and interest rates for those very exporters, and reduce real profits
even further. As a result of the weaker dollar, Americans will have to export
more in order to pay for the same quantity of imports. In other words, America
will suffer a falling standard of living.

It is interesting that the “experts” who laud the benefits of the
dollar’s decline were incapable of forecasting that decline in the first place.
Since I not only predicted the decline, but took decisive action in advance
to protect my clients, I would suggest that those reading these comments pay
particularly close attention to the following:

The weakness in the U.S. dollar is an enormous negative for the U.S. economy,
U.S. financial markets, and the American people. As a result of the falling
dollar, massive deficit spending, and the inflationary policy of the Fed, the
U.S. economy will most likely enter a severe recession in 2004, with sharply
higher consumer prices, interests rate and unemployment, and sharply lower
stock, bond and real estate prices. If the Fed is successful in its efforts
to postpone the inevitable until after the 2004 election, the hyper-inflation
which will likely result will be an unmitigated disaster in 2005.

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